Objective

To determine whether the Office of Addiction Services and Supports (OASAS) is effectively monitoring its contract with Palladia, Inc. (Palladia) to ensure reimbursed claims are allowable, supported, and program related. The audit covered the period from July 1, 2015 through June 30, 2018.

About the Program

OASAS oversees one of the nation’s largest and most diverse programs for the prevention and treatment of alcohol and substance abuse. Its mission is to provide quality, accessible, and cost-effective services that strengthen communities, schools, and families through alcohol and drug prevention treatment.

In 2014, OASAS entered into a five-year $45.6 million contract with Palladia, under which Palladia would provide drug and addiction treatment services. During fiscal year 2017-18, Palladia operated 31 distinct programs, 10 of which were contracted with OASAS. These 10 programs served 603 individuals in the fields of residential treatment, outpatient treatment, and scattered-site housing. In December 2014, Palladia merged with and began operating under Services for the Underserved (SUS), an organization that offers housing, employment, skills-building, treatment, and rehabilitation services. In 2017, Palladia and SUS entered into a management agreement whereby SUS would provide Palladia with administrative services. According to the contract, OASAS reimburses Palladia for its net operating expenses, up to the maximum budgeted amount for providing the contracted services. The expenses are reported by Palladia on its annual Consolidated Fiscal Reports and are subject to the requirements in the Consolidated Fiscal Reporting and Claiming Manual (CFR Manual), OASAS’ Administrative and Fiscal Guidelines for OASAS-Funded Providers (Guidelines), and the contract.

Key Findings

OASAS is not effectively monitoring the expenses reported by Palladia to ensure that reimbursed claims are allowable, supported, and program related. For the three fiscal years ended June 30, 2018, we identified $2,508,682 in costs that did not comply with the requirements in the CFR Manual, the Guidelines, and the contract, as follows:

• $1,679,913 in personal service costs, including:
  • $878,747 in costs that were not sufficiently documented or not allowable; and
  • $801,166 in salaries allocated to OASAS that were already covered under a management fee agreement.
• $779,458 in other than personal service (OTPS) costs, including:
  • $635,115 for which Palladia could not provide basic general ledger detail to support reported expenses; and
  • $144,343 in costs that were either not sufficiently documented, not program related, or ineligible.
• $49,311 in non-allowable parent agency administration costs.

Key Recommendations

• Recover $2,508,682 in unallowable and/or unsupported costs from Palladia, including $1,679,913 in personal service costs, $779,458 in OTPS costs, and $49,311 in parent agency administration costs.
• Establish additional monitoring controls and improve oversight to ensure that Palladia claims only actual expenses and that those expenses are allowable, reasonable, supported, and consistent with the CFR Manual, the Guidelines, and the contract.
• Ensure Palladia discloses all expenses and allocation methodologies during its budget process, specifically salary expenses shared between OASAS and non-OASAS programs and the details of those expenses included in parent agency administration costs.